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How the Mob controls marijuana and why it is impossible to expel them

CRIME

A tale of two shootings: How the Mob controls marijuana and why it is impossible to expel them

One of the Trudeau government's stated policy goals for ending marijuana prohibition is to divert the profits reaped by gangsters toward legitimate shareholders. But an investigation by Greg McArthur and Molly Hayes offers a glimpse into the insidious nature of organized crime, finding that criminal groups easily exploited loopholes in the federal government's old medical-marijuana licensing regimes

The last leaf found in a former grow-op building in Hamilton.

In the late afternoon of March 14 in the Toronto suburb of Woodbridge, a masked gunman jumped out of the passenger side of a black Jeep Cherokee, darted across a snow-dusted parking lot and unleashed a flurry of bullets into a black BMW. Thirty seconds later, he was back in the car, leaving Saverio Serrano – the son of a notorious Canadian Mafia figure and cocaine importer – wounded, and Mr. Serrano's 28-year-old girlfriend dead.

Two weeks later, in the west end of Toronto, an SUV rolled into the driveway of a bungalow at the end of a suburban cul-de-sac around 2:30 a.m. As 53-year-old Antonio Sergi, a beefy, cigar-chomping showman known in Mafia circles as "Tony Large" or "T Large," got out of the car and lumbered toward the front door, he was shot in the head and killed, execution style.

Convicted drug trafficker Diego Serrano, 69 is pictured in a police surveillance photo from Project OPHOENIX.

Antonio (Tony Large) Sergi is pictured in a police surveillance photo from Project OPHOENIX.

The shootings were carefully orchestrated and kicked off a wave of Mafia violence that has engulfed the Greater Toronto and Hamilton Area for nearly seven months. This spate of bloodshed – blasts of gunfire in public spaces, arson and the obliteration of an Italian social club by a bomb – shows no signs of slowing. Just last week, the suburban home of a suspected organized crime figure north of Toronto was set ablaze.

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But those two March shootings – the opening chapter to what is increasingly looking like Toronto's very own Mob war – share an intriguing, less discussed feature: Both male victims had been staking a claim to the legal marijuana industry, which the federal government hopes to have in place by next year.

No motive has been assigned in either case and it's unclear whether even the homicide detectives know why these people were shot. But with the rules of the soon-to-be-legal marijuana industry now being hammered out by the Liberal government of Justin Trudeau, the March shootings highlight a shortcoming in Ottawa's push for legalization of recreational pot, as well as the loopholes that are allowing gangsters to maintain their market share.

One of the Trudeau government's oft-stated goals for ending marijuana prohibition is to seize the profits reaped by organized crime and put those returns back in the hands of legitimate shareholders: "I can absolutely confirm that we are moving forward on a framework to regulate and control marijuana to … keep our communities safer from organized crime," Justin Trudeau said just weeks before the March shootings. It's a pitch frequently repeated by the government's point person on the legalization file: MP Bill Blair, the former chief of the Toronto Police Service. Not only will legalization spare youngsters from a burdensome criminal record, Mr. Blair says, it will have the added benefit of creating a legitimate marketplace in which revenues are taxed and disputes are resolved with lawyers' letters, not violence.

But wresting control of marijuana from the Mob is much more complicated than the Liberals' talking points suggest. The slaying of Mr. Sergi and the shooting of Mr. Serrano and his girlfriend, Mila Barberi, are a stark reminder that organized crime groups are already firmly enmeshed in the legal market. These groups have no intention of relinquishing their grip on the marijuana trade, and because of court decisions allowing for the personal cultivation of medical marijuana, it's unlikely that any new rules will force criminals to relinquish their dark corners of the market.


If there is a moment in history that opened the door for criminals to exploit medical-marijuana regulations that were created to help sick people, it was July 18, 1996, the day Toronto police drug officers blew into the home of Terry Parker.

Mr. Parker, an epileptic, had long fought for the right to grow and consume marijuana to combat his seizures. Even before the 1996 raid on his apartment, he had scored an earlier legal victory for medical users in 1988, when an Ontario District Court judge acquitted him of a simple possession charge on the grounds that he required the drug as medicine. But that didn't deter Toronto police eight years later, when they believed Mr. Parker was doing something they considered even more nefarious – growing for the purpose of trafficking. They seized 71 plants from his home in the now gentrifying neighbourhood of Parkdale. His arrest, and that seizure, set up a legal fight that would give rise to Canada's first medical-marijuana regime.

Mr. Parker was acquitted by a lower court, and when the matter came to the Ontario Court of Appeal, the panel of judges called upon Parliament to recognize the right of patients such as Mr. Parker who need to possess marijuana. The justices gave Ottawa a deadline of one year to make things right for medical users.

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The result was the first law that allowed medical users to grow and possess marijuana – the 2001 Marihuana Medical Access Regulations, or MMAR. The law allowed for "seriously ill persons" to lawfully possess marijuana, grow marijuana or designate someone to grow it on their behalf. Licence holders were permitted to produce a quantity "based on the daily amount approved for the authorized person," with no upper ceiling imposed by the legal framework. Predictably, Ottawa's solution to the court's edict pleased almost no one.

Patients argued that the new rules left them without a mechanism to legally acquire seeds, further criminalizing their own treatments. Police and bylaw inspectors complained that the law was being abused by gangs and criminals, explaining that without a cap on the amount that individuals could produce, physicians were handing out licences for more marijuana than any medical-cannabis patient could possibly smoke. And with designated medical growers banding together to collect licences and establish massive, industrial-sized grows, it was inevitable that some of that pot was being diverted to the street. More often than not, when officers entered a bungalow that had been converted into a mouldy grow op, someone was waving a licence in their face, rendering the police powerless. It didn't take long for Stephen Harper's Conservative government, with its tough-on-crime agenda, to dismantle the entire regime.

The Conservatives' vision, implemented in 2014, was meant to close those loopholes. The Marihuana for Medical Purposes Regulations, or MMPR, would take production out of the hands of individuals and limit it to only a small number of heavily regulated, well-capitalized companies. This new regime had other significant barriers to entry: Only the most heavily fortified facilities, overseen by corporate officers and directors who had passed a security screening, were to be considered for a licence. The law also tried to clean up the distribution process. Producers were only permitted to send medical marijuana to patients directly by mail order, with absolutely no storefront sales. This shift sparked what has been dubbed the Green Rush: hordes of investors and entrepreneurs racing to secure a foothold in the new market.

Mr. Sergi’s Hamilton grow op, housed in a decrepit former bar, was closed because of zoning issues rather than anything related to cannabis growing.


It was in 2014, as corporations began scrambling to apply for licences, that Mr. Serrano – one of the victims of the March 14 shooting – jumped into the fray, with his brother, Silvio. The pair had already been operating a company that sold commercial and residential lighting. Now, they would become the official Canadian distributor for Growlite, an Arizona-based lighting firm that was marketing marijuana lamps to growers in those U.S. states where pot had already been legalized.

Orders poured in, including from a number of MMPR-licensed companies, and Growlite Canada became a coveted asset during the Green Rush. In March, 2014, it was partly acquired by Canadian Cannabis Corp., a company that, like many others at the time, was also pursuing its own MMPR cultivation licence with Health Canada. Canadian Cannabis Corp. was positioning itself for growth, purchasing an industrial building northwest of Toronto, which, at 310,000 square feet, was supposed to house its cultivation operations once it was licensed. Eager to enter the market, it tried to buy its way in. A corporate team that included Silvio Serrano began negotiating with some of the 20-odd companies that had already secured their MMPR licences, hoping to purchase their businesses, but their efforts were unsuccessful.

Unbeknownst to the Serrano brothers, at the same time they were attempting to break into the legal-marijuana industry, there was another phenomenon quietly unfolding all around them: a criminal investigation into their 69-year-old father, Diego, whose various drug-related convictions include the trafficking of cocaine in the 1980s and, more recently, heading up a ring that imported and trafficked in ecstasy, the popular club drug. Diego Serrano has a history of emerging from lengthy stays in prison and involving himself in businesses run by his sons. In the mid-2000s, it was a stone-countertop company, a business he was linked to before his ecstasy-trafficking conviction. Now, after his latest stint in prison, he became a frequent visitor to his sons' lighting company.

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Undercover officers conducting surveillance spotted Mr. Serrano regularly dropping by his sons' business. Police were also monitoring his private phone activity, which showed that between fall, 2014, and summer, 2015, he had several incoming and outgoing phone calls with executives at the Canadian Cannabis, the company that had, by then, bought into Growlite.

In fact, he was in phone contact with the company's then-listed chief operating officer, John Esteireiro, a former Bay Street trader, as well as with three other Canadian Cannabis executives. None of those executives could explain to The Globe and Mail why phone records showed they had spoken with Mr. Serrano. When asked about their phone exchange, Mr. Esteireiro (who is now with investment firm Eight Capital) said he did not know the man: "I just have, like, zero clue on any of that, to be honest with you."

A lawyer for Mr. Serrano declined comment, explaining in a statement that all of The Globe's inquiries were about matters that are "currently being investigated by the authorities or are before the courts." As for Mr. Serrano's sons, Saverio Serrano declined to answer any questions. Silvio Serrano explained, through his lawyer, that he is co-operating with the police investigation into the shooting of his brother and the killing of Ms. Barberi and stressed that he has no involvement with crime and no criminal record. His lawyer, Peter Downard, denied that Diego Serrano had anything to do with his sons' marijuana-related ventures. But documents discovered as part of the police investigation suggest otherwise.

In a search of a fish-and-chips shop in Woodbridge run by Mr. Serrano, police seized a number of documents pertaining to Canadian Cannabis. They included an offering for shares in the company and an unsigned agreement of sale for an MMAR grow site – a sprawling parcel of land northwest of Toronto that, according to the documents, housed 700 marijuana plants, with the capacity to hold up to 1,000.

The police investigation – dubbed Project OPHOENIX – also linked Mr. Serrano to Mr. Sergi, the man who was executed two weeks after Mr. Serrano's son Saverio was shot. Although Mr. Sergi never had a criminal record, he had a 20-year track record of popping up in various schemes being probed by police. At various times, he had been charged with, among other crimes, threatening death and bodily harm, assault with a weapon and illegal drug trafficking, but he had always managed to wriggle out of a criminal conviction. In recent years, Mr. Sergi had turned to growing legal marijuana. He owned and operated at least two legal grow operations and was angling to secure a large-scale MMPR licence to grow even more marijuana. He had also been in business with the Serrano brothers' marijuana-lighting company and, based on police evidence, had dealings with their criminal father.

A search warrant on Mr. Serrano's home revealed an invoice for nearly $13,000 worth of Growlite equipment that had been issued to Mr. Sergi in September, 2014. Phone records – part of an investigation into another cocaine-importation scheme – show Mr. Serrano and Mr. Sergi contacted one another more than 300 times between 2014 and 2015.

Two weeks after Mr. Sergi’s death in March, a police search of the property found hundreds of empty planters, lights and other grow tools.

A garrulous charmer who was always happy to talk, Mr. Sergi, who fancied himself a cannabis connoisseur, spoke to The Globe about his pot-growing business several months before he was slain. He complained at length about Health Canada's unwillingness to grant him an MMPR licence and railed about the government's preference for white-collared, Bay Street types over street-educated, self-styled horticulturalists such as himself. Speaking about the corporations that Ottawa had approved for MMPR licences, he lamented: "When they got into the business, they just got in because it was a stock play." He encouraged a Globe reporter to "check the boards of all the … licensed producers. See if there's any person that knows, when it comes to marijuana, what they're doing. They're all ex-politicians or big-shot businessmen."

Rather than wait for an MMPR licence, Mr. Sergi's company, Cannabliss – "I thought it was a cool name," he explained in the interview – continued operating according to the rules of the old MMAR regime, using designated-grower licences acquired under that system. He grew scads of marijuana in at least two industrial-size locations and he was able to do this legally. That's because, not long after the Conservatives introduced their strict MMPR guidelines, patients who had grown their own marijuana according to the rules of the old MMAR system pushed back with court challenges. One of those cases, Allard et. al. v. Her Majesty the Queen in Right of Canada, was ultimately successful at the Federal Court of Canada, which found that forcing patients to buy only from MMPR-licensed producers was unconstitutional.

The decision forced the government to come up with a new law – and yet another acronym – that would allow the corporate MMPR growers to co-exist with the old MMAR regime. The result was the Access to Cannabis for Medical Purposes Regulations, or the ACMPR, a legal victory that effectively allowed growers such as Mr. Sergi to continue operating with impunity. He was a prime example of the kind of MMAR grower police had been warning about: Someone who strategically acquired personal and designated-grower licences, transforming a system for patients with a legitimate need into a vehicle for illegitimate, industrial-sized grows.

Unlike the facilities being licensed under the MMPR program – modern buildings with sophisticated security systems, temperature controls and intricate ventilation, all designed to protect both workers and neighbours – Mr. Sergi's operations were decidedly crude.

One of his grow ops was housed in a decrepit former Hamilton bar called Boomers that once served as a strip club. Another operation was housed in an industrial mall in Brampton, northwest of Toronto. These DIY grow ops are notorious for attracting thieves, but Mr. Sergi had a novel solution for that problem at his Brampton location: a wall of sloppily mortared cinderblocks placed just inside the unit's street-facing window. By night, the plants were protected by a German shepherd dropped off by a guard-dog company.

One of Mr. Sergi’s grow ops was housed in a decrepit former Hamilton bar called Boomers that once served as a strip club.

The Brampton facility – seemingly still operational (a second individual is licensed to grow at the same property) – is about the length of an Olympic-sized swimming pool, a huge space that was necessary for Mr. Sergi's inexplicably generous cultivation licence: His "personal use" licence at the property allowed him to store up to 17 pounds of dried marijuana at any time, and to maintain an additional 171 plants in production. According to Health Canada's own calculator, that figure, 17 pounds, suggests that a doctor wrote a prescription for Mr. Sergi for 35 grams of marijuana a day. That prescription is more than eight times the average daily consumption, 4.2 grams, of Canadian medical users, according to a 2012 consultancy report.

In Hamilton, Mr. Sergi relied on three such licences to produce his plants, licences he pointed to in a sworn court affidavit when he was fighting an eviction from Boomers. Mr. Sergi did not specify in that affidavit who the licence holders were who had asked him to grow on their behalf.

Mr. Sergi isn't the only producer with a licence to grow eyebrow-raising amounts of marijuana. Health Canada records obtained by The Globe show that one grower holds a licence for 300 grams a day – which legally allows them to store 145 pounds of pot at any given time. Unlike the 52 licensees operating under the old MMPR regime, there is no public registry that lists where these MMAR grows are located. Only police services are able to make such inquiries with Health Canada, and only in the case of an active investigation.


It remains unclear how the Trudeau government intends to address operations such as Mr. Sergi's when it unveils its rules, slated to be debated in the House of Commons this fall and to be put in place by next summer. Back in November, when Ottawa's task force on cannabis legalization released its final report, it recommended patients should still be allowed to grow marijuana for themselves. However, it urged the government to set a timeline for "phasing out" the ability for such patients to designate others – such as Mr. Sergi – to grow it on their behalf. The report does not address patients who, as Mr. Sergi did, wield "personal use" licences for exorbitant amounts of cannabis.

Not long after Mr. Sergi opened his Brampton operation, he was introduced to a potential buyer – Canadian Cannabis Corp. The introduction was made by Silvio Serrano, who was then working with Canadian Cannabis, after that company became a part owner of Growlite, said Ben Ward, then-chief executive officer of Canadian Cannabis. But after touring Mr. Sergi's facility, Mr. Ward said he quickly rejected the idea, explaining that the operation wouldn't meet the government's strict health and safety and security standards for an MMPR licence. Mr. Sergi's grow operation "looked like a disaster," Mr. Ward said.

The Hamilton operation, too, would be fairly characterized as a health-and-safety disaster. Makeshift ventilation and watering systems left the already decrepit building mouldy and damp. Support beams had been ripped out and wires dangled from the ceiling. The city had not wanted Mr. Sergi's grow op there. Neighbours had long complained about the smell wafting from the building, but police had said their hands were tied because the property was appropriately licensed by the federal government. Instead, bylaw officers went after Mr. Sergi on a zoning issue and after a drawn-out legal battle with his landlord and the city, he had finally agreed to vacate the property by March. Not long after that, he was dead.

Two weeks after Mr. Sergi's death, Hamilton police – acting on information they'd received about the operation growing beyond its legal limits – searched the property. But all that was left was a dumpy mess of hundreds of empty planters and lights, bulbs and other grow tools. All of the plants had been removed.

In an interview with The Globe on the eve of his departure as commissioner of the RCMP in June, Bob Paulson issued a warning to political leaders across the country about the insidious nature of organized crime. He called such groups a more serious threat to the country than terrorists and suggested that some politicians are naive about their influence.

"Without being a fear monger," he said, "we've got to have political leaders understand what organized crime is, how [the perpetrators] get their advantage, how they corrupt individuals and institutions, how they get their hooks into people."


gmcarthur@globeandmail.com
mhayes@globeandmail.com

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